Suppose that a large country experiences growth strongly biased towards its exports A. this will have...

Suppose that a large country experiences growth strongly biased towards its exports

A. this will have no effect on the country's terms of trade.

B. this will tend to improve the country's terms of trade.

C. this will tend to improve the terms of trade of the country's trading partner.

D. This will have no effect on the terms of trade for the country's trading partner.

Solutions

Expert Solution

If a large country is experiencing growth strongly biased towards its exports then (B)this will tend to improve the country's terms of trade.Usually a country is said to be in the developing stage when export rate exceeds import rate.

A.)This will have no effect on the country's terms of trade-it is not the right option as a country facing growth towards its exports will definitely have impact on its trade.Both rise or fall in export rate effect country's terms of trade.If in case a country experiences rise in export rate then it means that the country has positive effect on terms of trade.Likewise,if there is fall in export rate then country will witness negative effect on terms of trade.Therefore,"this will have no effect on the country's terms of trade" is not the correct option.

B.)This will tend to improve the country's terms of trade-it is the correct option as growth in exports develop terms of trade of a country.If a country witnessed growth in biased exports then the trading terms will tend to improve as production and sales rate of that country increases.High exports leads to development in trading since country gains huge profits by carrying out sales in foreign countries.Hence the option "this will tend to improve the country's terms of trade" is the correct option.

C.)This will tend to improve the terms of trade of the country's trading partner-this is incorrect option.The trading partner of an export country is import country.If more goods are exported to the import country then terms of trade of import country does not improve as maximum imports leads to decrease in production and sales rate of import country.This is not a sign of improvement.Hence the country's trading partner will not improve its terms of trade.The option,"this will tend to improve the terms of trade of the country's trading partner" is incorrect option.

D.)This will have no effect on country's trading partner-this is not the correct option.If there is growth in export rate,then the country's trading partner will have a negative effect as import rate of trading partner increases.Import country or trading country will have no development in terms of trade as maximum import rate is the indication of poor economy.So,if a country's exports grows then its trading partner will witness the effect.Therefore,"this will have no effect on country's trading partner" is not a correct option.

Hence,when a large country experiences growth strongly biased towards its export then the country will tend to improve its terms of trade.

Rahul Sunny answered 5 months ago

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